How do you make money by collapsing a currency?

How trade and currency wars work:

A toy retails in the U.S. for $20.00.

A manufacturer in China can make it for $1.00.

A manufacturer in the U.S. can make it for $8.00.

The retailer orders the toy from China, but when adding shipping costs and import tariffs, the toy will cost $7.00 … still cheaper than the local manufacturer.

Then the trade war starts …

The U.S. government logically wants to support its local manufacturers. They impose higher tariffs (higher import taxes) on toys from China to make local US manufacturers more competitive.

The toy will still cost $1.00 purchased directly from the Chinese manufacturer, but when imported to America (with the new import tariffs in place,) it will now cost $9.00.

The retailer loses $2.00 on each toy, still selling it at $20.

To keep its margins, the retailer must increase the price by $2.00.

In an effort to stay competitive, the retailer buys from the local manufacturer at $8.00 (saving $1.00) and sells for $21.00 (increasing $1.00.)

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Now the currency war starts …

Now the Chinese government wants to support their local manufacturers.

In response to the imposed trade tariffs, they collapse their currency against the dollar by, let’s say, 20%.

Now the U.S. retailer can buy 20% more toys with his same dollars. When imported, the toy will be at a very competitive price again against the local manufacturer.

Who wins?

·         The local manufacturer struggles to stay competitive.

·         The Chinese manufacturer also struggles to stay competitive.

·         U.S. consumers pay more for their toys. The higher the tariffs, the higher the prices they pay.

·         Chinese consumers also end up paying more by the devaluation of their local currency, as many other commodities are traded in dollars.

·         The more intense the trade/currency war, the more consumers feel the pain.

Now, to answer your question, how do you make money by collapsing a currency? By trading products or services from one local currency to another, but this is just a temporary benefit.

Economies will ALWAYS adjust, and sometimes it can be very painful.

We live now in a globalized economy. All wars are painful, and a trade war is no exception. At the end of the day, nobody wins. The real suffering trickles down to the population.

Do not ignore global economics in 2020.